AT&T , Sprint Nextel, T-Mobile andVerizon are in talks to launch mobile-payment projects
using Near Field Communications phones and other “contactless” technologies as early as this
year, according toindustry publication NFC Times. This technology, increasingly common in
Europe and Asia and known as “m-payment,” lets consumers make purchases using a cellphone or
other handheld device right at the checkout counter.
The telcos might work with payments partners, such as third-party payment service providers
or financial institutions and perhaps a major payment brand. But word is the m-payment plans
of the operators do not include major U.S. banks.

That bodes ill for big U.S. banks such as Bank of America (BAC)and Citigroup (C), along with
credit card giants Mastercard (MA) and Visa (V), all of which are testing contactless
m-payment. Telecoms once viewed such companies as potential partners in deploying these
services, but they’re now considering whether to go their own way. If their pilots succeed,
it could allow mobile operators to bypass banks and credit card issuers altogether in
providing the vital financial link between shoppers and merchants.
Many people already use mobile networks to buy ringtones and other products. But
facilitating mobile payments at the point-of-sale is potentially big business, NFC Times
editor Dan Balaban told me. “It could be the mobile operators see an opportunity here to
break into the payments business. They have tens of millions of subscribers carrying mobile
phones that could one day become payment devices.”

Contactless payment involves NFC technology, which is used to transmit data between devices
over short distances. In essence, it turns a cell phone into a mobile wallet, enabling
payments and storage of personal information. For example, people can use their NFC phone to
buy movie tickets, purchase transit passes and check in at the airport simply by tapping
their handset on a special reader.

But full-blown contactless m-payment would represent a dramatic advance. For instance, the
technology could turn cell phones into credit cards. It could also allow merchants to send
mobile coupons or other promotions, which consumers would redeem with a tap.

In the U.S., progress has been fitful. Banks and the credit card companies have been testing
contactless cards for years, with limited success. An additional major hurdle for m-payment
is getting disparate constituencies to work together. Depending on their uses, a mobile
payment system requires the involvement of mobile network operators, hardware makers, card
issuers, government agencies, transit authorities and numerous other players.

And at the retail level, the quandary is a classic chicken-and-egg scenario: Enough
consumers must use contactless m-payment to persuade merchants to invest in (and install)
the required infrastructure. Meanwhile, enough merchants must use the technology to
encourage consumers to invest in a souped up phone.

M-payment business models also remain in development. Under one scheme, banks could collect
a fee from merchants or tack on charges for mobile wallet transactions involving a credit
card. Meanwhile, telecoms could build proprietary payment networks in order to shut banks
out of the fee. But nothing is certain on this front.

Still, the potential is huge. In Japan, the world leader in use of the technology, some five
to 10 million people use their cell phones to make contactless m-payment purchases, while
nearly three-quarters of mobile phones have digital wallet capabilities, according to
industry estimates.

A key question for the American market: Would growing competition between telcos and banks
speed the emergence of contactless m-payment or bog it down? If they’re smart, financial
firms and mobile operators will opt against trying to steal a march on the other and instead
join forces in the hope of breathing life into a promising new business line. There’s money
to be made here.

 

 

 

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